Isis Decides Against Building a Payment Network

The Wall Street Journal reports that Isis, the erstwhile joint-venture of AT&T, Verizon Wireless, and T-Mobile, has decided that going it alone –that building a new payments network to compete with Visa and MasterCard –is simply too high a mountain to climb. Isis, instead, will continue building a mobile wallet to accommodate card accounts from other card networks and issuers.

Now, the group has adopted the less ambitious goal of setting up a “mobile wallet” that can store and exchange the account information on a users’ existing Visa, MasterCard or other card, people familiar with the matter said. The carriers are scrambling to find other ways to make money from the transactions.

To get as many users as possible, the carriers are now in talks with Visa and MasterCard to have them participate in the system they will embed in phones, people familiar with the matter said.

“The carriers have to include MasterCard and Visa,” said Drew Sievers, cofounder and chief executive of mFoundry, a leading provider of mobile banking technology. “Not including the 800 pound gorillas of the industry will make it very hard to succeed.”

While not mentioned in the article, it’s likely that AT&T’s planned acquisition of T-Mobile has changed the balance of interests and power within the Isis joint venture. Having just two giant mobile operators as the JV owners does not lend itself to a stable, balanced relationship.

The dynamics of mobile payments are shifting quickly. For a time, it seemed that the mobile operators would hold the keys to the mobile payments castle, locking and unlocking the NFC secure element that holds payment credentials. They have no such iron grip. There are now at least four different ways to put a secure element in the phone, only one of which is controlled exclusively by the mobile operators.

The handset manufacturers like RIM and Apple are looking to monetize their NFC capabilities by working directly with payment card issuers. The mobile operators are not in a great position to head that off because power now accrues to the handset manufacturers. Google is working along similar lines. All of this means the mobile network operators are facing a future that, to their terror, looks a lot like the ISP industry where the providers struggles to drive incremental revenues.